By all accounts, Ineshia Marsh is a post-grad success story. She graduated in December from Louisiana’s Grambling State University with a degree in computer science, and she found a job soon after as a help-desk technician at Computer Sciences Corporation in Bossier City, Louisiana.
But she’s living with student loan debt that’s higher than her annual income of $35,500. Her first student loan payment came due in August, and she realized she couldn’t afford the $387 she owed every month.
So when Marsh, 23, heard an ad on the radio last month saying she could get help consolidating her separate loan payments into one and lowering how much she owed overall, she saved the 1-800 number in her phone. A few friends had recently posted on Facebook about consolidating their own loans, so she called the number a few days later — even though she didn’t do much research on the company beforehand, uncharacteristically for her.
“I Google everything, and for some reason I did not Google anything about loan consolidation,” she says.
The number Marsh called was for Riverwalk Debt Solutions, a for-profit company that prepares Direct Consolidation Loan applications for student loan borrowers and submits them to the U.S. Department of Education. Depending on the types of federal loans they’ve taken out, many grads need to consolidate their student loans in order to qualify for income-driven repayment plans — which cap monthly student loan payments as a percentage of income and forgive borrowers’ remaining balances after a certain number of years.
A Riverwalk customer service representative told Marsh she was eligible for the income-based student loan repayment plan. For a processing fee of $695, the company would work with the Department of Education to consolidate her loans and switch her current repayment plan to the new one. She’d have to pay the first of four installments, $173.75, to start the process.
The problem? She could do all this on her own — for free — through Great Lakes, the student loan servicer that manages her loans for the government.
“I had no idea I could call the company and do it straight through them,” she says. She went to Great Lakes’ website at NerdWallet’s suggestion, and filled out the forms she’d need to switch to income-based repayment for free. Her payments went from $387 to $14.84 a month.
An emerging industry targeting recent grads
Almost 41 million people had outstanding federal student loans as of June 2015, according to Federal Student Aid. Nearly 4 million borrowers are now on an income-driven plan, double the number who participated this time last year. But a lot of eligible grads still don’t realize they’re able to tie their student loan payments to their incomes, or that the government will help them do so for free. Companies like Riverwalk are preying on borrowers’ unfamiliarity with the student loan system, says Ted Mitchell, under secretary of education at the U.S. Department of Education.
“We feel very strongly that the industry that’s emerging is a new set of snake oil operations that’s taking advantage of borrowers,” he says. “We think it’s bad business for students and we hope that we’ll be able to take all the wind out of their sails through more active work through our servicers.”
“We feel very strongly that the industry that’s emerging is a new set of snake oil operations that’s taking advantage of borrowers.” — Ted Mitchell, under secretary of education, U.S. Department of Education
States have also been stepping up to raise awareness of the free federal services available to borrowers. Minnesota Attorney General Lori Swanson sued the Florida-based company Student Aid Center, Inc., in July for misrepresenting its paid loan consolidation services to customers. California Attorney General Kamala D. Harris released a consumer alert on “student loan debt consolidation scams” in August after her office said it had received a spike in complaints from constituents who paid to have their federal loans consolidated, without realizing they could have done it for free.
Why consolidate, and how to do it for free
Consolidating federal loans is useful for grads who have several loans that they’re having a hard time keeping track of, or if they want to qualify for particular repayment or forgiveness programs. Consolidating Stafford Loans into a Direct Consolidation Loan, for instance, will allow those loans to meet the requirements for certain income-driven repayment and loan forgiveness options. If borrowers have only Direct Loans, they don’t need to consolidate to take part in those programs.
That’s because only Direct Loans are eligible for Pay As You Earn repayment and income-contingent repayment — which cap borrowers’ monthly loan bills at 10% and 20% of income, respectively, and forgive their loans after 20 to 25 years — and Public Service Loan Forgiveness (PSLF), which forgives grads’ remaining loan balances after they’ve worked full-time in public interest jobs for 10 years.
Federal loan consolidation works like this: Borrowers first take an inventory of their current federal loans, which can be found on the National Student Loan Data System, and choose the ones they plan to consolidate. They then apply for a Direct Consolidation Loan for free through studentloans.gov, a process that takes about 30 minutes. During the application process they’ll list the loans they want to consolidate, choose a loan servicer for their new Direct Consolidation Loan and pick a new repayment plan based on what they’re eligible for. Income-driven plans require a separate application and supporting documents to verify the applicant’s annual income.
Borrowers can call their student loan servicer — like Marsh did — or the Loan Consolidation Information Call Center at (800) 557-7392, to get help with the more difficult parts of the process, like gathering necessary application materials, figuring out which loans are eligible for consolidation and picking a new repayment plan. Officials refer to offers by for-profit companies to process this paperwork for a fee as “scams” because it’s often unclear from their advertisements that the Department of Education offers the same services for free.
‘The government just doesn’t market to you’
The consolidation process can be confusing for grads like Marsh, who hear about loan forgiveness and income-based repayment but don’t know how to take advantage of these programs. Even if they don’t need to consolidate, borrowers who want to switch to an income-driven plan might not realize they can do it through their servicer directly. Riverwalk Debt Solutions says it is filling the gap and helping grads sign up for complicated programs.
“The clients that we deal with are people that either don’t have time, they are not interested in learning the process, or they just don’t want to deal with the Department of Education,” says Kemarie Black, director of student loans at Riverwalk. What’s more, she says, the company is raising awareness of the programs among grads who wouldn’t receive help with their student loans otherwise.
“There are a lot of people that aren’t even aware that these programs exist,” Black says. “I have never seen an advertisement.”
Riverwalk makes it clear that their customers can get the same help for free, Black says, with disclaimers on the phone, in the paperwork their clients fill out and on their website.
But the government doesn’t publicize that free help as effectively as companies like Riverwalk market the paid variety, says Shelly Bell, 34, an Alexandria, Virginia-based poet and founder of Women Writers Rock who also almost paid Riverwalk to consolidate her loans.
“The government just doesn’t market to you,” she says. Bell called a hotline that connected her with Riverwalk Debt Solutions after she saw a Facebook ad about student loan forgiveness. A Riverwalk representative told Bell she could pay $99 a month for four months to process the paperwork it would take to consolidate her $57,000 in federal loans, Bell says. The representative made the loan consolidation process sound too difficult for Bell to do on her own, she says.
“As much distrust as we have for our government sometimes, the fact that she was telling me, ‘The government’s not going to help you. You’re going to need us,’ made me feel really weird,” Bell says.
She hung up and started researching online how to manage her loans. She ended up on studentloans.gov, where she found the phone number for the government’s Loan Consolidation Information Call Center.
“There were no fees, everything was explained and laid out there,” she says. “The information is not even that hard to understand if you have someone coaching you through it.”
Riverwalk Debt Solutions did not respond to requests for comment on Marsh’s and Bell’s cases.
“There were no fees, everything was explained and laid out there. The information is not even that hard to understand if you have someone coaching you through it.” — Shelly Bell
Bell consolidated her loans through the Department of Education and signed up for income-based repayment. Since she had recently been laid off from her job as a program manager at the nonprofit Career TEAM LLC in Washington, D.C., she didn’t have to make any student loan payments at the time. She wrote about her experience with Riverwalk in a blog post in the hopes it would alert other grads to the fact that they don’t have to pay to switch repayment plans, she says.
“I want everybody to know, hey, do not fall for this. Do your research.”
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